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Broker spotlight - easyJet, Ryanair, IAG and Marks & Spencer


As many travellers used the Easter break to jet away, broker heavyweight JP Morgan Cazenove has European airlines on its radar.

It says it favours the low cost carriers over the legacy firms as the budget flyers offer better potential for investors, due to the unrelenting pressure from Middle East flyers and stagnating margins for the legacies.

EasyJet (LON:EZJ) is rated 'overweight' while the target price flies up to 2050p from 1815p. Ryanair (LON:RYA) is upgraded to 'overweight' from 'neutral', while British Airways owner IAG (LON:IAG) is downgraded to 'neutral' from 'overweight'.

The broker kicks off coverage on Central/ Eastern Europe low-cost flyer Wizz Air with an 'overweight' rating and price target of 1,700p (current price - 1,460p). 

"Wizz is a low-cost, virtual airline, outsourcing wherever possible. It enjoys high aircraft utilisation, has a robust ancillary menu, a meaningful cost advantage over Legacy peers, and an appetite for growth."

Analyst Jamie Baker notes that sluggish consolidation in the sector suggests the industry is incapable of the restructuring seen in the US, for example, which is currently the most profitable market.

"....without meaningful European hub closures and significant labour cost harmonisation, we don’t envision a time when the returns of, say, Lufthansa could rival those of Ryanair," he says.

High Street bellwether Marks (LON:MKS), meanwhile, caught the eye of US broker Jefferies, which has lifted the price target on the shares to 625p from 550p and repeated a 'buy' stance, following fourth quarter numbers last week.

"Online sales have returned to good growth which is encouraging for FY15/16. 

"Unfortunately FX and macro-economic instability have hit international profits but despite this we increase our FY15E and 16E PBT by 3-4% and raise our price target to 625p to reflect this upgrade and the market's re-rating," analyst Caroline  Gulliver said in a note to clients..

Meanwhile, German bank Berenberg today repeats a 'buy' call on troubled construction group Balfour Beatty (LON:BBY) following its 2014 results, saying it believes the firm is "fixable".

The firm has the most blue-sky upside in its (the broker's) construction contractors coverage but it highlights risks remain.

"Recovering profitability is mainly dependent on improving the internal risk management process, not just cost savings. 

"Furthermore, even after recognising the additional £118m risk provision at the FY 2014 results, our working capital analysis suggests the balance sheet is not especially conservative."

Elsewhere, in brokerland Liberum analyses the reported talks of broadcaster ITV (LON:ITV) over buying  the TV production business of The Weinstein Company -  set up by Hollywood moguls Bob and Hervey Weinstein.

Among the points noted, the broker says this will further move ITV into the states and  if it goes ahead, will likely be taken positively, as was the Talpa (the firm behind The Voice) deal previously. ITV is rated 'buy with a target price of 310p. Shares are now at 253.3p.

In the small caps, Premier African Minerals (LON:PREM) shares advanced over 9% today as it had the Environmental Impact Assessment for at its RHA tungsten mine approved by the Zimbabwe authorities, with permission to mine also granted.

House broker Shore Capital said this was "very good new" as expected, which means permission has therefore been granted to operate RHA.  

PREM is targeting first production in early June 2015.

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